Jill Kerby: New beginning after mortgage settlement

6 May 2012

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Strike one up for the little guy! Hurray for the hard-pressed bank customer!

Strike one up for the little guy! Hurray for the hard-pressed bank customer!

Last week was one of those rare times when it looked like the tables, which have completely favoured the banks over the citizens of this country, might have started to turn: a nurse with an unpayable amount of mortgage debt was relieved of that burden in what some commentators are describing as a ground-breaking debt forgiveness case.

The nurse, 35-year-old Laura White, bought her house in the north Dublin suburb of Coolock in 2005 for €245,000 but by 2010, after a change of job with reduced earnings, was unable to meet her mortgage payments. She voluntarily surrendered her house at the end of that year, but Bank of Ireland (the parent bank of the lender, ICS), eventually sold the property for just €70,000 and sought the €170,000 shortfall from Ms White.

Three years later when the case appeared before the court, with the help of the consumer advocacy group New Beginning, it was finally agreed last week that the bank would write off €150,000 of the debt if Ms White repaid €18,000 over the next six years at €250 a month. (If she defaults at any time, a €120,000 judgment will be registered against her.)

On the same day as that announcement, AIB admitted it was reimbursing €3.1 million worth of premiums to 11,500 of its credit-card customers for the payment protection and travel insurance policies they mistakenly or inadvertently purchased when they applied for the card.

These customers had either ticked both the “accept” or “decline” boxes on the form for payment protection insurance or travel cover; they provided contradictory information on the form; or the payment protection policy wasn’t cancelled as they expected when they were informed it would be when the went into arrears on their policies. None of these mistakes or anomalies was picked up by the bank as the forms were processed by AIB and the customers were subsequently charged the policy premiums.

This €3.1 million back-office discrepancy was only discovered when customers came forward and after the bank undertook its own review, says AIB, but “We acknowledge that the Central Bank is conducting a review into the sale of PPI which also encompasses part of this issue.”

The Central Bank’s investigation of the sale – and by implication, the misselling of all payment protection insurance (PPI) – began late last year and its findings are expected to end with significant amounts of compensation being paid by the banks to customers (despite the statute of limitation of six years that applies in these cases, though many expect that that will have be addressed separately, so large is the potential scale of this problem.)

The fact that it was Bank of Ireland and not one of the wholly owned Irish banks that came to this mortgage arrears settlement with New Beginning is significant.

The bank has benefited from recapitalisation by the Irish state and taxpayer, but it is also 80% privately owned with prominent North American investors, who it can be speculated have a more realistic attitude to clearing arrears, writing off debt and giving both the bank and customer the opportunity to move on.

It remains a mystery to everyone why billions of euro that was designated for arrears write-offs have not yet been used for this purpose by the other Irish banks; the White case shows it can be done.

Some suggest that the risk of a stamped of people throwing back their keys is why the banks have to resist widespread debt write-down. But a significant part of the White settlement is that she didn’t walk away with €150,000 worth of debt forgiveness AND her house. She was left with five years of wasted mortgage payments, another six-year discharge period in which she must pay another €250 an month, and absolutely no house to show for it.

(Debt write-offs are more likely to trigger the moral hazard lights here if debtors keep their homes as standard practice, as happened in Norway back in the early 1990s after their property boom and bust. Few expect that to happen, though tenancy arrangements in the former home are likely.) New Beginning and McHale Muldoon, a firm of Dublin solicitors, are two legal offices (among many in the case of PPI) that have been representing consumers at risk of losing their homes due or who may believe they have been the victim of PPI misselling.

New Beginning act pro bono in cases they take on (they get 80 calls a day from distressed homeowners, says barrister and co-founder Ross Maguire) while solicitors who take on PPI cases take a share of any refund. Given that the Central Bank is preparing a report on PPI and complaints can be made at no cost to the Financial Services Ombudsman, anyone seeking compensation for PPI may wish to deal with the Ombudsman instead.

The New Beginning queue is already pretty long and after last week’s success more of the iceberg that is below the mortgage debt waters will be revealed.

It could be next year before the insolvency and bankruptcy legislation gets up and running.

Until then, your options are limited, and you’ll probably need the help and kindness of strangers (like New Beginning) if you’re to get a settlement like Laura White secure.

But last week’s revelation means that a light has finally appeared at what has been a very dark tunnel for so many.

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